How to improve your business cash flow

Good cash flow control is important for any business. For a growing business, its crucial as cash constraints can be the biggest factor limiting growth and overtrading can be fatal. Making the best use of your finances should be a key element in business planning and assessing new opportunities. When you are chasing new business growth and you only have limited resources, you may end up starving your core business of essential funding or you may have to pass on something important. Here are some ideas from The Business Minder notebook.

Credit Control

Every element of your business working capital should be carefully controlled to maximise your free cash flow. Manage your customer debt. If your customers owe you money, do you know how much is owed and how overdue the payments are? Make sure that your invoicing processes are as efficient as possible. Offer a small discount to customers who pay their bills early or by direct debit and charge a penalty to those who pay late. Encourage use of payment cards. Depending on the nature of your business, you may want to consider accepting credit card and debit card payments. This allows you to receive next day value for your sales and services, without the need to handle cheques and make deposits.

Advance Payments

Consider pay in advance promotions. This is a great way to improve your cash flow. Offer deals on your products or services to customers who buy for a fixed period of time. A subscription based product like a magazine is a good example of how these promotions work. You pay the publisher upfront for an advance subscription and in return you get a better deal on the cost of the magazine. These promotions can be made to work for almost anything. Your customers save money on a package of goods or services and you get the cash upfront.

Price Structure Review

The easiest way to change your business financially is to change your prices. How many items do you have sell each month to 'break even' or start making a profit? Revisit your break even point and evaluate the effectiveness of your advertising or any other expense that you incur to increase sales. Every expense to increase profits should be seen as an investment with an expected rate of return that is greater than the cost.

Profitable businesses have regular reviews and make allowances for rising costs or sales dips. Know your break even point, gross profit and profit margin figures to price your goods and services to cover your total cost of producing that product or service. These figures are essential to make a reasonable profit. If your products and services are of a good quality and your people are friendly and helpful, a small increase in your overall prices will not drive your customers away. You should be able to raise your prices by 5 or 10 percent without experiencing any market resistance.

Stock Control

Good stock control and effective supplier management tend to become increasingly important as businesses grow. Holdings of obsolete stock may become a problem that needs periodic clearing up. You may want to work with suppliers to reduce delivery cycles, or switch to suppliers and systems that can handle 'just in time' delivery.

Monthly Service Fees

Cancel everything you're being charged for on a monthly basis that you don’t absolutely need. Its amazing how many fees can add up to significant savings.

Overdraft and Credit Facilities

Refinance your business if your reporting shows that you are continually reliant on overdraft or other financing facilities. Avoiding the temptation to over borrow or to over commit in financially can be the difference between sustainability and disaster for your business. Whatever industry you’re in and whatever ambitions you might have for your business, its wise only to borrow what money you need to progress and grow and not whatever amounts are available to you at a given time.

Planning ahead helps you anticipate your financing needs and arrange suitable funding. For many growing businesses, a key decision is whether to bring in outside investors to provide the equity needed to underpin further expansion.

Seek advice

Talk to your accountant regularly. The services of an accountant can serve as an investment rather than an expense. An accountant can review your cash flow projections and results, provide insights into areas that you may have overlooked, and help you anticipate and plan for cash flow problems. They can help to detect potential problems and provide suggestions for ways to improve cash flow in your business.

Cash flow is the lifeblood of your business, so keeping a close eye on the finer details generally gives your business the best chance of being successful and sustainable. The Business Minder operates in ASEAN countries with clients in Malaysia, Singapore and Bali, Indonesia.